Russian “Black Money” Threatens To Boot Cyprus Out Of The Eurozone

German Bailout Chancellor Angela Merkel, who is trying to avoid any tumult ahead of the elections later this year, has a new headache. Cyprus, the fifth of 17 Eurozone countries to ask for a bailout, might default and exit the Eurozone under her watch. Using taxpayer money or the ECB’s freshly printed trillions to bail out the corrupt Greek elite or stockholders, bondholders, and counterparties of decomposing banks, or even privileged speculators, is one thing, but bailing out Russian “black money” is, politically at least, quite another.

Cyprus is in horrid shape. Particularly its banks. Their €152 billion in “assets” are 8.5 times the country’s GDP of €17.8 billion. “Assets” in quotation marks because some have dissipated and because €23 billion in loans, or 27% of the banks’ entire credit portfolio, are nonperforming. That’s 127% of GDP! And then there are the Russian-owned “black-money” accounts.

A “secret” report by the German version of the CIA, the Bundesnachrichtendienst (BND) was leaked last November, revealing that any bailout of Cyprus would benefit rich Russians and their €26 billion in “black money” that they deposited in the now collapsing banks. The report accuses Cyprus of creating ideal conditions for large-scale money laundering, including handing out Cypriot passports to Russian oligarchs, giving them the option to settle in the EU. Much of this laundered money then reverses direction, turning minuscule Cyprus into Russia’s largest foreign investor [read... The Bailout of Russian “Black Money” in Cyprus].

Now Cyprus needs €17.5 billion—just about 100% of its GDP—of which €12 billion would go directly to the murky and putrid banks. The package should be wrapped up and signed on February 10 at the meeting of the European finance ministers.

“I cannot imagine that the German taxpayer will save Cypriot banks whose business model is to abet tax fraud,” grumbled Sigmar Gabriel, chairman of the opposition SPD that has been a supporter of euro bailouts; and Merkel, hobbled by opposition within her own coalition, had relied on them to get prior bailouts passed. “If Mrs. Merkel wants to have the approval of the SPD, she must have very good reasons,” he said. “But I don’t see any....”

The Greens are resisting the Cyprus bailout for the same reasons. And 20 members of Merkel’s own coalition are categorically opposed to it. For the first time, Merkel has no majority to get a bailout package passed. The opposition smells an election advantage.

Before the German finance minister can vote in the Euro Group of finance ministers for disbursement of bailout funds, he must seek parliamentary approval. The German Constitutional Court said so, inconveniently. But without his yes-vote, which weighs 29%, the qualified majority of 73.9% cannot be reached. The bailout disbursement crashes. That’s what Cyprus is contemplating.

Fearing defeat, sources within the government now made it known that they wouldn’t even present a bailout package unless Cyprus agreed to “radical reforms,” including massive privatizations of the bloated state sector—precisely what communist President Dimitris Christofias has ruled out.

The Russian “black money” is so unpalatable that even the bailout-happy President of the EU Parliament, Martin Schulz, got cold feet. Before a bailout package could be put together, he said, “it must be disclosed where the money in Cyprus is coming from.”

Markus Ferber, head of Merkel’s coalition partner CSU, demanded a guarantee that “we help the citizens of Cyprus and not the Russian oligarchs.” In addition, he wants Cyprus to reform its naturalization law. If Cyprus wants to get bailed out, he mused, it must make sure “that not everyone who has a lot of money can get a Cypriot passport.”

Foreign Minister Guido Westerwelle (FDP), who is no Eurosceptic, hammered home that the Cyprus won’t get special treatment. The European community is “ready for solidarity, but only in return for real structural reforms,” he said. “Greece didn’t get a blank check, Cyprus won’t either.” And those reforms included “banking transparence.” They’re all out there now, griping about German taxpayers bailing out Russian “black money.”

Having learned a lesson from Greece, Cyprus has gone on a charm offensive to persuade the other 16 Eurozone countries that its “black money” problem has evaporated and that more reforms aren’t necessary. On Monday, Central Bank President Panicos Demetriades invited the finance ministers to a dog and pony show that would explain the banking sector and the perfectly legit activities of the Russian funds.

If Greece is any guide, Merkel will vociferously demand more reforms and transparence in the banking sector. The February 10 deadline might pass. Cyprus will come up with a list of promises. Gradually the rhetoric will change. Words like “progress” will show up. “Black money” will disappear from the media. This might even culminate with a heartwarming meeting in Berlin between Merkel and Christofias. And suddenly, voting against the Cyprus bailout, once a safe bet, will become politically risky. It worked before. It might work again. If not, Cyprus with all its “black money” might become the first Eurozone country to go bust.

The European Commission issued its report on bank bailouts, the “2012 State Aid Scoreboard.” Turns out, the amount that the 27 EU states had handed to their banks amounted to €1.6 trillion. 13% of GDP—to bail out bank stockholders, bondholders, and counter parties, and enrich privileged speculators. Read.... The EU Bailout Oligarchy Issues A Report About Itself.

Before the German finance minister can vote in the Euro Group of finance ministers for disbursement of bailout funds, he must seek parliamentary approval. The German Constitutional Court said so, inconveniently. But without his yes-vote, which weighs 29%, the qualified majority of 73.9% cannot be reached.

The usual way this is done in Europe is simply to change the way the decision is taken - by removing the democratic element...

Germany is wrong of course because Olli Rehn and Jose Barosso said that the Eurocrisis was over and the Euro saved. Who are the Zermans or anybody else for that matter to doubt the words of our all knowing masters?

This money is accumulating without any tax being paid (either at the time it is earned or subsequently) and through a series of complex structures finds its way back into mainstream economies where it proceeds to turn citizens into serfs.

By my reckoning I would say that this amount could recapitalise and re-boot the world economy and at the same time it could be a catalyst for bringing to an end the over generous promises of the welfare state that can never be delivered in the longer term.

Please do not ever ever question why is it that free people of the world "have to" pay tax in the first place. Bitching about folks that do not pay taxes is just slave auto-policing. I applaud the tax cheats and the ones that try to reclaim (conscientiously or otherwise) their freedom from theft.

Financial aid to Cyprus, and its banking system, from the ECB, will inspire the Cypriots, as they bask in the brotherhood and support of all Europeans. Many of the conflicts and animosities of the past, especially the strife between Greek and Turkish Cypriots, will defuse, as the goodwill shown them will overwhelm the quarrels of the past. And the Russian Mafia, forgetaboutit. Honest, hard-working, freedom-loving citizens will eschew, that's right, eschew, their dealings with the unsavory characters and their ill-gotten booty. Where cynics see corruption and greed, I see a City on the Hill, in a dawning new age.....

Isn't this the place that recently blew itself up? Really! with very large quantities of high explosive munitions stored in the sun next to the islands main power station that was blown to smitherins and killed dozens of nearby persons? I mean how fucking stupid/crooked are these scum? Which is worse a stupid banker or a crooked banker? or a stupid politician or a crooked politician? or a stupid crooked bought and paid for politician? I mean would you lend these idiots any amount of money after they have put themselves into hyper/debt, and no electric power to boot? J H Christ given their debt to GDP ratio - a sure sign of various irregular and nefarious activities, if you are you are as fucked up as they are. God who can believe this stuff?

Maybe they are not all assets but the US has been buying stuff for centuries with funny paper called a dollar. The world allowed it bc it was good business for everybody. But the free ride won´t last for ever.

Exactly! The winning strategy is: Work less, earn less, pay much less German taxes! That´s what I do since the bailouts started. Noone can transfer my free time to Grees, Cyprots, Africans and the like!

—The scant 0.2 percent monthly increase in German industrial production in November was a "major disappointment," according to Capital Economics, reinforcing expectations of a "big fall" in fourth-quarter gross domestic product. As for that much-needed rebalancing, production of consumer durables is down "almost 10 percent over the last year," the firm notes. That leaves it looking pretty likely Europe's biggest economy will contract at around a 1 percent annualized pace for the quarter. On top of yesterday's weak report, it "provides a strong warning that the German economy is heading back into recession."